Highlights of the Federal Reserve FOMC Statement and Powell's Press Conference

FOMC Statement and Economic Outlook

1. Statement Overview: Interest rates were cut by 25 basis points to 4.00%-4.25%, resuming the rate cut pace that had been paused since last December. Board member Milan believes a 50 basis point cut is appropriate.

2. Interest Rate Outlook: The dot plot projects two more rate cuts this year. One official expects a total rate cut of 150 basis points within the year, while one official (non-voting) believes there should be no rate cuts this year. The median forecast for the federal funds rate at the end of 2025, 2026, and 2027 has been lowered to 3.6%, 3.4%, and 3.1% respectively.

3. Labor Market: Downside risks to employment have increased, previously stated as "labor market conditions remain solid." The median unemployment rate forecast for the next two years has been lowered to 4.4% and 4.3%.

4. Inflation Outlook: Inflation has risen and remains at a "slightly high" level. The PCE and core PCE inflation forecasts for the end of 2026 have been raised to 2.6%.

5. Economic Outlook: The median GDP growth forecasts for the end of 2025, 2026, and 2027 have been raised to 1.6%, 1.8%, and 1.9%, with the median GDP growth forecast for the end of 2028 at 1.8%.

Powell's Press Conference

1. Interest Rate Outlook: This rate cut is a risk management move; there is no need to adjust rates rapidly. Decisions will be made meeting by meeting, focusing on data. Downside risks in the labor market were the focus of today's decision.

2. Inflation Outlook: Inflation has risen recently and remains slightly elevated. In August, overall PCE may rise 2.7% year-on-year, and core PCE may rise 2.9% compared to last year. Inflation risks are tilted to the upside. The baseline scenario is that the impact of tariffs on inflation will be temporary. Tariffs contribute 0.3-0.4 percentage points to the core PCE price index.

3. Economic Outlook: Economic growth has slowed, mainly reflecting a slowdown in consumer spending. The pass-through of tariffs to consumers has already occurred, but to a lesser extent than expected. The labor market faces downside risks. Annual employment data revisions were almost entirely in line with expectations, and the revised employment data means that the labor market is no longer solid.

4. Political Factors: Firm commitment to the independence of the Federal Reserve. In response to Milan's influence on the rate decision, it was stated that the only way an individual voting member can have an impact is by presenting a highly persuasive argument. There is no consideration of incorporating a "third mandate" in any other way.

5. Market Reaction: From the announcement of the rate decision to Powell's speech, gold fluctuated sharply, hitting a new high of 3707 before dropping $60; the dollar and US Treasury yields fell first and then rose, with the dollar briefly returning above 97, and the 2-year US Treasury yield erasing more than 7 basis points of declines; US stocks surged and then fell sharply, subsequently maintaining a slight downward trend.

6. Latest Expectations: As of press time, interest rate futures are pricing in a 45 basis point rate cut this year and about a 72 basis point cut next year, with a 13.3% probability that the Federal Reserve will hold rates steady in October.